Alcatel loss narrows; submarine-cable unit to IPO

SamSchechner

PARIS--Alcatel-Lucent SA (ALU.FR) plans to float its submarine-cable unit on the public market, the network-equipment maker said Thursday after it narrowed its loss in the second quarter.

The Franco-American maker of cellular networks and Internet backbone gear on Thursday said that it is exploring a public offering of the a minority stake in the unit, dubbed Alcatel Submarine Networks, in the first half of 2015, in order to give the unit, which operates ships to lay undersea cables, resources to expand into the oil and gas exploration business.

Cash raised from the submarine unit, which Alcatel had previously considered selling outright, could also play a "small part" in helping company achieve its promise to raise at least 1 billion euros ($1.34 billion) through asset sales, though the Alcatel now plans to keep majority control, Chief Executive Michel Combes said.

"ASN is part of the Alcatel-Lucent group," Mr. Combes said on a conference call with journalists.

The sale of a stake in one of Alcatel's oldest assets--and one where it is still a global leader--is the latest change for Alcatel under Mr. Combes, who has for more than a year been working on his "Shift Plan" to redirect the company's resources to a few profitable areas, while selling off some assets. The plan has led to heavy staffing cuts as part of a goal of returning to positive cash flow in 2015.

Mr. Combes said that one of the main goals of the plan would be achieved in August, when Alcatel repays a secured loan that it had received in early 2013, backed by the company's patent portfolio, as well as some of its U.S-based operating units-a deal that had caused political outcry in France. The payment will take place on Aug. 19, the company said.

The Paris-based maker of cellular networks and Internet backbone routers on Thursday reported a net loss of EUR298 million, or 11 cents a share, compared to a net loss of EUR885 million, or 39 cents a share, a year earlier, when the company took a EUR552 million impairment charge, largely on the value of its cellular-network business.

Alcatel's adjusted operating income of EUR136 tripled on year, beating some analysts' expectations as the company focused on higher-margin business. But the company continued to burn cash, posting a EUR205 million free cash flow loss in the second quarter, compared to EUR247 million a year earlier.

Revenue in the second quarter fell 4.7% to EUR3.28 billion, in part as the company has dropped many low-margin or unprofitable managed-services contracts to operate networks for phone operators. The company said that after accounting for the strong euro, revenue was up 0.7%, and would be up 5% without managed services. The figures exclude the company's enterprise business, which it listed as discontinued beginning in the first quarter.

The company's once-struggling wireless unit showed some of the biggest growth, boosting its top line by 22% to EUR1.30 billion, driven Alcatel said by high-speed wireless roll-outs in the U.S. and China. At the same time, company's fast-growing Internet-routing division stumbled, with revenue falling 10%, because of what the company said was a difficult comparison against a strong year-ago quarter.

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